Employee Benefits Cost Containment: How HR Can Help Overcome 3 Major Roadblocks

Impossible may be a word HR teams associate with the task of addressing rising benefits costs. Yet, leadership teams are increasingly asking them to do so. Benefits programs have always required a careful balance between costs and outcomes. However, increased regulation, rising health care costs and greater employee expectations have made this balance harder over time. In fact, health care costs rose by 4.5% in 2024 and are expected to rise 5.8% in 2025.

That leaves HR teams with questions like: 

• Can employee wellbeing really be improved simultaneously with cost management?
• Is it even possible to control program costs without harming employee health, financial, and productivity outcomes?

The short answer is yes. While we can’t change the overall cost of health care, employers and modern HR teams have options to manage costs across every aspect of their benefits program. One way is leaning into technology as an essential tool for cost management. 

The Three Major Roadblocks to Health Care Cost Containment

Employee benefits cost containment is not as simple as it seems. You’ve seen this firsthand, taking varying measures to influence direct program costs and employee choice inefficiencies with mixed results. 

The truth is most employers have reached a point where they can’t shift costs further. A Mercer study revealed employers are covering more of the premium costs. The reason is because shifting further costs onto employees would negatively impact competitiveness and potentially damage employee health outcomes. Now, it’s time for employers and HR teams to pivot. Rather than cost shifting, employee benefits cost containment must become about cost efficiency.

But that still leaves three major challenges to striking the right balance in benefits programs:  

1. Health Care Costs = Benefits Plan Design Hindrance

There is general industry agreement that health care costs will continue to rise significantly in 2025 and beyond. With benefits currently making up nearly 30 percent of total compensation costs, HR teams are in a challenging position. 

For example, employers are seeing a significant rise in pharmacy costs, from 21 percent in 2021 to 27 percent just two years later, led by demand for GLP-1 medications to treat type II diabetes and (in some cases) obesity. At the same time, company leadership teams may push for benefit budgets to get leaner and more efficient. 

Without insight into how to gain those efficiencies, HR teams can be left in the dark on the issue of navigating high short-term expenses with the potential of achieving long-term positive health outcomes when it comes to benefits program design.

2. Sub-Optimal Employee Decisions

It’s no secret that many employees make poor decisions about which benefits to choose and how to use them. Some of the more common mistakes include: 

• Choosing the wrong plans for their needs
• Making poor health care decisions (e.g., choosing suboptimal care for their condition)
• Choosing care options that aren’t covered or are unnecessarily expensive
• Delaying essential care and failing to act on diagnoses
• Visiting the wrong providers (e.g., out of network, lower quality)

Research shows that 32 percent of employees receive an unnecessary procedure each time they seek care¹. Additionally, an extra $3,000 is added to annual per-employee benefit costs each year due to low-quality care.¹ Poor benefits choices not only result in significant avoidable costs for employees and employers, but they can also result in worse health outcomes in the short and long term.

3. Administrative Inefficiencies and Waste

A recent review of U.S. health care found waste accounted for 25 percent of all spending across the health care system. The total waste figure is estimated to be between $760 and $935 billion. 

Contributors to this figure include overtreatment, low-value care, and pricing failures — but the worst offender was administrative burden, which accounted for over a quarter of a trillion dollars per year. 

How a Comprehensive Benefits Administration and Engagement Platform Can Help Contain Employee Benefits Costs

Overcoming those roadblocks requires more than additional cost cuts. If employers and HR teams want to support employee wellbeing, control costs and attract and retain talent, they may wish to consider nontraditional solutions. That’s where benefits technology comes in. 

A benefits administration and engagement platform is intended to take the burden off HR to manage and engage employees in their benefits decisions. To that end, more effective technology solutions can help an employee make an informed decision in the moment, while guiding them to the next optimal decision. The best part: success is shown by maximizing health outcomes and containing costs for both employees and their organization.

In this section, we’ll illustrate specific ways modern benefits technology can alleviate direct and indirect costs to businesses and HR teams. 

Personalized Decision Support Eliminates Choice Inefficiencies

Poor plan fit happens when employees don’t fully understand their benefit options or which choices will support their individual needs and priorities. And those decisions can profoundly impact benefit program costs. 

A personalized decision support tool can help change that, guiding employees to the combination of benefits that’s in their best interests. And adding individual health care claims and analytics to a platform like Benefitfocus’, can supercharge the experience. Backed by unbiased guidance factoring in family size, expected health care needs, risk tolerance and more, employees get a full view that can lead them to a: 

• 20 percent higher enrollment in high deductible health plans (HDHPs)³
• 28 percent higher supplemental health insurance adoption rate³, and
• 17 percent higher Health Savings Account (HSA) adoption rate.³  

Care Navigation Improves Outcomes

Quality of care matters for both cost and outcomes, and the research shows that. In fact, 70 percent of low-quality and wasteful care can be eliminated by top-performing doctors.[1]

Offering a care navigation tool² like the one integrated into Benefitplace^TM enables employees to identify high-quality, in-network doctors, reduce costs, and maximize employee health. This is especially true when it comes to managing care around some of the most expensive conditions to treat such as MSK issues, diabetes, mental health and more. 

What’s more, Benefitfocus’ Care Partner Panel provides a curated, vetted selection of digital health solutions around common chronic conditions. With preferred pricing and direct platform integration, it’s a big win for everyone[i]. Employers get predictable ROI, while alleviating the burden around point solution management. And employees get better tools to manage their health.

Health Care Data Insights Allows for Program Design Efficiency

When HR teams can design, build and refine a benefits program based on knowledge of what employees truly need, that’s powerful. They can offer benefits and initiatives that accurately reflect employees’ health and financial needs while potentially avoiding overspending on unnecessary initiatives. 

A health care data analytics solution, like Health Insights from Benefitfocus, helps you understand your employee population and highlights program design inefficiencies that could be increasing costs. In 2024 for example, Benefitfocus helped a service customer save $10,000 a year plus $1,000 a member pregnancy by uncovering their current maternity program was not being administered correctly (for the last 10 years). They used their data analytics solution, Health Insights, to identify the inefficiency and the customer was able to make an informed decision to end the program and redirect those funds to better support their employees*.

Cost Savings from Administrative Complexity and Error Reduction

Many manual processes undertaken by HR teams don’t neatly fall into specific categories but can still consume considerable time and resources. Consider everything from billing and payroll to COBRA administration and ACA compliance. No HR team wants to be the contributor to wasteful spending or expose the company to costly penalties. Unfortunately, in our experience, errors are common.

Outsourcing these areas through a trusted benefits administration technology partner offers the opportunity to bring a streamlined, automated solution to complex, time-consuming billing and payroll and compliance) challenges. 

Take, for example, payroll reconciliation. Benefitfocus can validate actual payroll deductions against enrollment information, identify differences, and automatically adjust deductions for future pay runs. This closed loop process is crucial, as it helps protect the organization — and your employees — from overpaying. It can also help track accurate benefits payments with a complex hourly workforce. For one large retail client, Benefitfocus’ payroll reconciliation helped close an $11 million variance gap in 2024*.

Dependent Verification Automation Reduces Procedural Inefficiency

Dependent verification is a matter that must be handled with care while also balancing the implications for businesses. Of course, only covering eligible dependents is critical to the stability of your benefit plans. At the same time, determining eligibility can be a long, tedious and overwhelming effort for benefit teams.

Benefits administration vendors like Benefitfocus provide dependent verification services to help make things as painless as possible. By offering both one-time dependent eligibility audits and ongoing verification, the work is taken off your plate so you can more easily protect your plan rules, while also looking for opportunities to save your company money. Benefitfocus saved one large customer an estimated $774,000 in 2024 by removing 326 ineligible dependents from one or more benefits. They plan to run audits every three to four years going forward to continue to help curb costs*.

Technology is the Ultimate Business Enabler

Just as levers and pulleys can allow one person to lift more weight than a dozen could lift unaided, technology has the ability to turn weeks or months of manual effort into a few clicks. 

HR teams can benefit from the support of a quality benefits administration partner to help identify and eliminate the causes of direct and indirect costs. The optimal partner can help you inform the design, creation and refinement of benefits programs that support employers’ priorities around employee benefits cost containment, ultimately maximizing the return on investment for both employers and employees alike.